Analysts: HP Buyout of Palm Good for Both Companies

Last week, we reported that Palm was in big trouble, facing defections from high-ranking executives and a smart phone platform that couldn't attract developers. This week, that outlook is quite different.

With the announcement that HP is snapping up the once-dominant PDA manufacturer, Palm's webOS platform has been given a jolt of electricity to re-start its heart. It may signal the beginning of a strong new direction for HP as well. So far, analysts are giving the move a big thumbs-up.

"HP is now a force to be reckoned with in the mobile space," blogged Michael Gartenberg of the Altimeter Group. Independent Analyst Carmi Levy agrees, writing that "the two companies complement each other rather nicely."

Levy added that HP finally found the right entry point into the smart phone market, after years of missteps. "HP's efforts in mobile handsets for much of the past decade were largely ineffective. Its iPaq brand, acquired through the purchase of Compaq, was virtually ignored through much of its existence," he stated.

No more. The merger could dramatically affect the direction and fortunes of both companies, argued Wired.com's Priya Ganapati. "Access to HP’s distribution channel and coffers could help turn the tide for Palm. That’s especially true for the enterprise channel -- computers and smart phones for business users -- where both Palm and HP have historically been strong."

Even with those advantages, it won't be enough unless a vibrant development ecosystem develops around webOS. It's one of the iPhone's main advantages, and something HP must be devoted to, Levy wrote. "Market success is no longer determined by whoever rolls out the coolest devices. Without developer support, even the most deftly advanced piece of hardware will fail miserably. Despite Palm's efforts to reconnect with developers who had long since defected to competing platforms, the end result was an application store filled with tumbleweed and a roadmap with no direction."

Still, the smartphones themselves -- the Palm Pre and Palm Pixi -- are well regarded in the industry. That's a solid starting point, and Gartenberg thinks it could be enough to launch the webOS-based smart phone, whatever the branding ends up being, back to prominence. "WebOS should now be viewed as a serious contender in the mobile platform wars. While critically acclaimed, Palm simply did not have the resources needed to effectively compete with players such as Apple, Google and Microsoft with deep pockets and the resources to sustain themselves in the market. The combination of Palm technology and brand combined with HP resources and channel partners will be a strong combination for HP to drive their mobile efforts forward," he stated.

But that may take awhile; HP's a big company. And in the meantime, the major players can continue to drive smart phone technology ahead, increasing the gap. "The good news for Apple and Google is they have nothing to fear. It'll take the better part of a year to 18 months for HP to integrate what it's just bought and begin to turn things in a more profitable, growth-focused direction," Levy blogged.